Small Business, Smaller Small Business Budget?

The rate of small business failure is trending downward, Entrepreneur reports. Part of this trend stems from savvy business owners who do their homework before putting their product or service on the market. It can also be attributed to the rise of accessible, cloud-based eCommerce tools and accounting solutions, which make it possible for even home-based businesses to make the most of a smaller small business budget.

What does this mean for you, the new business owner with a great idea, solid market niche and well-thought-out business plan? That the opportunity for success has never been greater than it is right now. But there’s a problem: While you’re long on ideas, you’re short on cash. So how do you start making money when you don’t have any to spare?

Go Bare Minimum

Once you’ve got a great idea and credible business plan it’s tempting to run out and spend money on all the “essentials” that other small businesses have, like office space or computer hardware. But here’s what you should be asking yourself: Do you really need these things to be successful? Do you really have the small business budget to make it happen?

Consider physical office space. Depending on your needs, you could pay anywhere from $500 to $2000 per month for a moderately sized place to call headquarters. But is this really necessary? In a world of online ordering and easy shipping, is it possible to run the business from your home or apartment? Other considerations here include capital expenses such as new computers or office equipment and more peripheral spends such as business cards. In every case, ask yourself the same question: What’s the bare minimum?

Leverage Low-Cost

If you’re manufacturing a product, you need a reliable supplier. If you offer a service that includes an online component, you need solid support. But here’s the thing, you don’t always have to pay top dollar. Option one is to negotiate. Don’t assume a vendor’s price is final, and be on the lookout for added services or solutions you don’t need. Pare down to the absolute bare bones offering and then try to reduce the rate a little more. For many owners this means getting out of their comfort zone to hold a firm line, but it is often worth it in the end.

Another option? Find local providers to help meet your needs. For example, a Texas-based home business which produces baby sleep sacks got by during its first year by leveraging the talents of local seamstresses to supplement production until revenues outstripped operational costs by a wide margin. There’s no shame in looking local to support hometown suppliers and keep costs down.

Be Realistic

Don’t kid yourself: Many startups still fail between the three- and five-year mark. Why? Because they don’t set realistic goals and their small business budget just isn’t enough. If you’ve enjoyed a solid six months to a year of sales, you might want to forecast a steady growth for revenue — rather than an exponential increase — and budget accordingly. In addition, be prepared to do most of the work yourself for the first few years. While hiring full-time employees may be the eventual goal, you can significantly reduce overhead by being the only staff member on payroll — and by working as long as it takes to get your business off the ground.

Embrace Expertise

Tell everyone you’re an expert. Don’t hesitate, don’t equivocate: Believe it and vendors will be less likely to take advantage of your naiveté. Next? Actually become an expert. Do product and market research in your field. Go to conferences. Read articles. Know everything about the current market climate and its likely next direction. Not only will this increase your overall confidence and performance, but help reduce the risk of making poor budgetary choices.

Connect With Your Network

It’s probably a good idea to avoid asking friends and family for money since they’re not SMB experts and would (understandably) want a say in how the business is run. But there’s no harm — and no shame — in asking your social circle to help out with some sweat equity even if you can’t pay very much. Here, goodwill goes a long way; maybe it’s just to get your first order out the door or handle customer inquiries over the holiday season. Express your gratitude freely and often, pay back family and friends when the business gets on solid ground, but don’t hold back from asking for help when you’re in the early stages.

Find Financing

You can’t do everything for free. Sure, you’ve passed on office space, found a local supplier and tapped friends and family, but you still need to bankroll some startup costs. Here are a few options to consider:

Crowdfund:From Kickstarter to Indegogo to GoFundMe, crowdfunding sites are one way to share your idea with the world and see what kind of traction it generates. Ideally, you get a large sum of cash from thousands of individual investors. Just make sure to under-promise and over-deliver.

Try the SBA:As noted by Fortune, if you’re not able to secure a loan through your local bank, try the Small Business Administration. They don’t actually issue loans, but they will effectively vouch for you with approved lenders if you pass their SMB screening process.

Bootstrap:The classic SMB investment strategy: Fund it yourself. You’ve got a few choices here; use your personal savings if you have enough, take out a home equity loan, cash in a whole life policy or — for short-term needs only — use credit cards. There’s risk, sure, but you keep total control.

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Sometimes things don’t go as planned. That’s what happened to Rickshaw Dumpling after their first successful brick-and-mortar location opened; they opted for a second and almost bankrupted the business. A quick pivot to food trucks saved the fledgling dumping empire, but it was a close call. Be prepared for the same kind of quick moves as an SMB; solid revenue doesn’t always guarantee future success. Once things start going well always keep some money tucked away for unexpected legal costs, hardware replacements or staff needs.

Stay True

Ultimately, the goal is to run the small business you imagined, not simply the one that’s possible under a limited cash-flow scenario. While minimal money is the common starting point for many small businesses, periodically take the time to reevaluate: If you’re enjoying steady success, does the business reflect your ultimate intention? If not, consider your priorities: Is money or message your end game?

I write about small business and small business finance as Editor for OnDeck. With over 30 years in the trenches of small business, I’m a Main Street business evangelist, author, and marketing veteran that makes the maze of small business lending accessible by weaving personal experiences and other anecdotes into a regular discussion of one of the biggest challenges facing small business owners today.

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